The ground underneath the fossil fuel industry is shifting. Shareholders and the courts are challenging some of the world’s biggest oil and gas companies for failing to act on climate change. No single day speaks more poignantly to the declining fortunes of the industry than Wednesday, May 26th. On this day three of the world’s biggest publicly traded companies suffered grievous blows that may prove to be the opening salvos of a war they are destined to lose.
Bill McKibben described these events as “cataclysmic” and an “utterly crushing day for Big Oil.” Bloomberg’s Julian Lee described it as “The day the world changed for Big Oil”. Nell Minow, the vice-chair of ValueEdge Advisors and a longtime strategist in proxy fights, told the Atlantic’s Robinson Meyer, “It’s monumental,” adding “there’s never been anything like this.”
As reiterated in a recent IEA report, our obsession with oil must end. A wide range of factors are contributing to its demise. In addition to organized action by environmental groups, and an ever-growing divestment movement, the industry is also finding it increasingly difficult to get insurance and bank financing.
The future of fossil fuels is looking increasingly bleak. Governments are acknowledging that we must break free of the old energy industry. US President Joe Biden has made it clear that burning hydrocarbons is not part of America’s energy future Recently G7 ministers took concrete steps towards weaning western democracies off of oil. The declining financial health of the industry has been exacerbated by COVID-19 which has hurt dirty energy far more than renewables. This is not a new phenomenon, financial hardships have been plaguing the fossil fuel sector for years. Five years ago diminishing profits signaled the beginning of the end of oil. The situation deteriorated further due to the oil crash of 2020 that bankrupted many companies and caused widespread job losses. According to some estimates, oil could plummet to $10 by 2050.
Their fate is sealed and their demise cannot come soon enough. The fossil fuel industry is responsible for millions of deaths every year and they are an existential threat to biodiversity and human civilization. This is an industry that has known it is the primary driver of climate change for decades. ExxonMobil knew. Shell knew, the whole industry knew, yet rather than acknowledge the truth they hatched elaborate multi-pronged campaigns of disinformation that undermine science. They work to manipulate the public so that they can continue to profit from their core business. Their hypocrisy and corruption know no bounds, They use front groups like the Heartland Institute to present distorted climate information to school children. They also use their tremendous wealth to buy politicians and political outcomes. To this day the industry continues to increase emissions and flout the facts. All of these factors are fueling growing antipathy for dirty energy. It is becoming increasingly apparent that the whole fossil fuel industry is rotten to the core and their protracted history of corporate malfeasance will live in infamy.
Now the fossil fuel industry is being challenged by its own shareholders. Just a few hours after a Dutch court ordered Shell (sixth-largest share of cumulative carbon emissions) to slash its carbon emissions by almost half, hedge fund Engine No.1 succeeded in getting three activist investors on ExxonMobil’s board of directors (ExxonMobil generates the third-largest share of cumulative carbon emissions). The same day shareholders at Chevron voted for a new emissions assessment formula that will force the company to massively increase its emissions reduction (Chevron has the second-largest share of cumulative carbon emissions).
The shareholder motion at Chevron and the ruling of the Dutch court is an important step in the effort to hold oil companies accountable for the emissions they generate. Instead of focusing solely on their own operations (Scope 1) and those of their suppliers (Scope 2), the Chevron motion and the Dutch ruling include all the emissions generated by the burning of the products they sell (Scope 3 emissions). The net effect is to force fossil fuel companies to reduce the emissions they generate and offset the massive volume of remaining emissions. Together these events will force the industry to massively increase its carbon offsets.
ExxonMobil
ExxonMobil is guilty of a number of environmental crimes including one of the most devastating oil spills in American history. Starting on March 24, 1989, 10.8 million barrels of crude oil began spilling out of the Exxon Valdez after it ran aground in Alaska. The spill created an oil slick that covered 10,000 square miles and contaminated 1,300 miles of coastline. The spill decimated wildlife, killing thousands of sea otters, bald eagles, and orcas.
While the company has flirted with things like zero waste to landfill and green algae pilot projects, they are little more than public relations ploys. ExxonMobil is better known for its crimes against humanity. The company and its precursor, Standard Oil Co. are major contributors to the climate crisis and they have a long history of obfuscation and disinformation . The oil giant spawned multi-channel campaigns of disinformation and led the climate change denial industry. The company’s most recent ruse is to try to shift the blame for climate change to consumers.
ExxonMobil has been the focus of shareholder pressure for years. Starting in 2013 shareholders began to pressure the company to disclose its climate risks. In 2016 the Church of England (CoE) tabled a shareholders motion calling on ExxonMobil to “disclose the resilience of its business model in the wake of the Paris Agreement on climate change.” The CoE was only one of several groups that put forth climate-related shareholder motions at their annual meetings. In 2019 their inaction on climate change was the basis of a formal court challenge. However, all of these challenges were shot down by the oil behemoth.
This changed on May 26th, 2021, when a group of investors backed by the three largest pension funds in America demanded that ExxonMobil take climate change seriously. In an 80-page investor presentation, Engine No. 1, called out ExxonMobile for poor financial governance and failing to come up with a viable strategy for dealing with the existential threat of climate change. Their campaign to install new independent directors won widespread support and there are now 3 activist investors on the company’s board of directors.
Royal Dutch Shell
On May 26th a Dutch court ruled that Shell must reduce its carbon emissions by 45 percent by 2030 compared to 2019 levels. This is the first time a court has ruled a company must reduce its emissions and it may have far-reaching implications for the oil industry as a whole. Tom Cummins at the UK law firm Ashurst said: “This is arguably the most significant climate change-related judgment yet,” and Michael Burger at Columbia Law School said the Dutch ruling “could reverberate through courtrooms around the world”. Roger Cox, a lawyer for Friends of the Earth Netherlands, and one of the layers involved in the case said, “This is a turning point in history”.
This is not the first time that Shell was held accountable by the courts. In 2016 Shell was forced to pay $22 million to the city of Clovis California after unsafe levels of trichloropropane (TCP), were found in the city’s drinking water. The company has a legacy that will haunt its future. In 2011, an offshore oil rig owned by Shell leaked 110 tons of oil into the North Sea creating an oil slick about 20 miles long and 2.5 miles wide. The company aggressively pursued drilling projects in the Arctic and at the start of 2013, one of their oil rigs ran aground in the Gulf of Alaska. In 2012, the company suffered two major oil spills, one in New Zealand and one in Nigeria. In a recent landmark court ruling Nigerian farming communities forced Shell to take responsibility for its oil spills in the Niger Delta.
Unlike ExxonMobil, Shell does appear to see the writing on the wall. Shell is one of the first global energy companies to acknowledge climate change risks. In 2019 the company announced that it would spend $300 million over the next three years on ecosystem restoration including remediation efforts in wetlands, nature conservation, and reforestation. The company said it will invest in 700 new electric vehicle charging stations across Europe. Shell also claims it is transitioning away from fossil fuels and is increasingly focusing on hydrogen gas, biofuels, and electricity for charging cars.
Chevron, Suncor, ConocoPhilips, Philips 66 and others
Other fossil fuel shareholders are also rebelling Shareholders at Chebron and Suncor are demanding more climate action and ConocoPhillips and Phillips 66, have already seen investor revolts over climate inaction. The fossil fuel industry has lost legal challenges in the US and more recent rulings in Australia and the Netherlands give us reason to believe that the courts will expedite the end of oil.
However, we are far from where we need to be and there are still powerful holdouts. Warren Buffett continues to support the oil and gas industry and he recently helped to defeat a shareholder resolution that urged Berkshire Hathaway Inc. to inform investors about the risks it faces from climate change.
Michael Holder from the BusinessGreen website is less than sanguine: “The events are still only baby steps towards these companies credibly transforming their businesses in line with the goals of the Paris agreement,” Holder wrote. Nonetheless, we are at a historic turning point in the battle against climate change. This is the first time in history that oil companies have faced such challenges and it won’t be the last. Ceres’ Andrew Logan said, “This will be seen in retrospect as the day when everything changed for big oil.”
Arresting our use of fossil fuels is necessary and there is good reason to believe that the end is in sight. The events that unfolded on May 26th suggest that the demise of the old energy industry may take place sooner than some had anticipated. As McKibben said, “push long enough and dominoes tumble”.
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